Local Lenders Looking Before Leap for Funds

LAKELAND | The federal government's plan to prop up banks by distributing $250 billion in capital is having no problem finding takers, but some local lenders say they might not jump on board.

By KYLE KENNEDYTHE LEDGER

LAKELAND | The federal government's plan to prop up banks by distributing $250 billion in capital is having no problem finding takers, but some local lenders say they might not jump on board.

It's not an easy decision, they say.

Officers of banks in good shape say they're having to weigh the possible drawbacks of not dipping into the funds offered through the Capital Purchase Program, which carries a Nov. 14 application deadline.

"I think what you're seeing is that the government has made it very attractive for banks to participate in this, so you have to ask yourself, are you at a competitive disadvantage if you don't participate because it's such a cheap source?" said John Corbett, president and chief executive of Winter Haven-based CenterState Bank. "A lot of people are just trying to figure it out right now."

At least 19 regional lenders have agreed to accept funds from the program, including those with local operations such as Atlanta-based SunTrust Banks, Cincinnati-based Fifth Third Bancorp and Birmingham, Ala.'s Regions Financial Corp. Half of the $250 billion already has been allocated for the nation's nine largest banks - including Bank of America, Citigroup and Wells Fargo - leaving the rest for regional and community banks to consider.

Under the program, banks can receive funds in exchange for issuing preferred stock to the Treasury that pays special dividends at a 5 percent interest rate, rising to 9 percent after five years. Government officials hope the money will stimulate lending activity at a time when credit is in short supply.

Local lenders say the prospect of low-interest capital is tempting, though some worry the funds will end up bolstering weaker competitors.

"If any company in this environment went out to raise capital right now, the cost would be far greater than that 5 percent," Corbett said. "I think you're seeing a lot of banks look at that and say, 'I don't need capital, loan quality is fine, but if I don't participate, those banks that do will be at a competitive advantage.'<0x200A>"

Like many community banks, CenterState had limited exposure to the state's housing collapse and is still well-capitalized, Corbett said. He said the company has not yet decided whether it will participate in the initiative.

Greg Littleton, president and chief executive of Lake Wales-based Citizens Bank & Trust, also said his bank has adequate capital and will likely not apply for funds, though he expects some community banks to do so.

"I don't think this part of the bailout will be exclusively for the big banks," Littleton said. "Some banks might be gearing up to take advantage of buying up branches or buying banks that might be in trouble in the future."

And that concerns Kevin Jones, president of Lakeland-based MidFlorida Federal Credit Union, who fears the program will be used more to facilitate mergers than increase lending to small businesses and families - its larger purpose.

"Obviously there are banks that need this capital and it gives them a lifeline, but for others, they're just strengthening their capital position," Jones said.

He also chafes at the fact that member-owned institutions such as credit unions are excluded from receiving funds. "It's a little annoying that banks are going to be able to borrow money from the government at a 5 percent interest rate. It gives them an advantage over us," Jones said.

Officials say the infusion of capital will help banks finance acquisitions without issuing more stock. SunTrust, which is set to receive $3.5 billion from the Treasury, intends to boost lending but is keeping all options open, said Ray Sandhagen, a regional SunTrust president in the territory that includes Polk. "We did not have a deep need for additional capital, but this was a financially attractive way to add to our capital base, both as a further cushion against uncertain times and to provide additional resources and take advantage of growth opportunities," Sandhagen said.

Local executives with Bank of America and Colonial Bank declined comment for this story. Officials with Fifth Third Bank could not be reached for comment.

Aside from competition issues, banks of all sizes will have to weigh the Treasury's offer in light of the weakening U.S. economy, said Paul Merski, chief economist for the Independent Community Bankers of America. The group, which represents some 5,000 independent banks nationwide, recently surveyed 400 members and found that just 20 percent plan to take funds from TARP, while another 30 percent are still on the fence.

[ Kyle Kennedy can be reached at kyle.kennedy@theledger.com or 863-802-7584. ]

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